February 2004 was not the best of times to start a business in the Juhapura neighbourhood of Ahmedabad. Two years ago, the city had been gripped by the worst communal riots in its history.
Following the bloody riots in Godhra, Juhapura swelled with refugees, pushing its population up to about 5 lakh, making it the largest Muslim neighbourhood in Gujarat.
In the meanwhile, Nadeem Jafri—tired of his five-year stint at ad agency Grey Worldwide’s Mumbai office—got an itch to start something of his own. Enamoured of a Big Bazaar outlet in the same building as his office in Mumbai, he quit his well-paying job and returned to Juhapura to start a supermarket. Jafri says he considered starting a restaurant and an advertising agency, but discarded the ideas as they would not have given enough returns to investors.
Despite the pervading gloom over Juhapura in February 2004, Jafri opened Hearty Mart, a supermarket at Vishala Circle, on the edge of the neighbourhood. He did not consider its vast Muslim population to be victims and refugees, but potential customers with aspirations like anyone else. And there was no organised retailer catering to their needs: Although there were other superstores, such as Reliance Fresh and Big Bazaar, in Ahmedabad, none had ventured into restive Juhapura.
“Mine was a Blue Ocean Strategy,” Jafri says, between mouthfuls of fried rice and chicken at a Mainland China outlet in a tony mall in the heart of Ahmedabad. The phrase refers to uncontested markets as blue oceans. Apple is a classic blue ocean company.
But, unlike Apple, which created an entirely new market, Jafri only identified an untapped one. He did not create it, but certainly benefitted from the hesitation of others to enter it.
Jafri bet on his relatively prosperous Chilea Muslim community to support the venture, and raised capital from friends and relatives. It helped that his uncle Syed Mushahid Husain Jafri was the head of the sect.
Chilea Muslims—they are Shias with a Sufi tradition—hail from the northern and central parts of Gujarat. Originally a farmer community, they have become a dominant presence in the region’s hotel business and run about 500 restaurants, mostly along highways. They have a string of restaurants in Ahmedabad too.
Jafri says that although no one from the community was killed in the 2002 riots, 90 percent of their hotels and restaurants were gutted and most of the people moved to Juhapura. Jafri had counted on them to form his client base. Yet, after about eight months, he was hunting for a job to support himself.
He left the day-to-day running of the store to his colleagues and took up a job selling space at Times of India and, later, returned to Grey Worldwide. He also started teaching advertising and organised retail at business schools such as Proton Business School, NRIBM and MICA.
Hearty Mart used every tactic in the book, such as customer loyalty programmes and home-delivery services, to raise its bottom line, but progress was very slow. It required sales of Rs 3.75 lakh a month to break even, and it was proving to be a stretch.
That was when Jafri started Hearty Mart (HM) Enterprises, a wholesale supplier to hotels, which would become the backbone of the group. He rightly reasoned that since his community was running hotels, it would be easy for him to get their business. The community’s experience also helped him find people who understood the food and grocery business.
The backward integration paid off. Soon, HM Enterprises was throwing up cash, and its scale was helping Jafri stock Hearty Mart at much lower costs, thus increasing margins.
Around this time, Jafri met Wazir Ali and Hussain Abbas, two entrepreneurs who had started Ashish Enterprises, a supplier to highway hotels. HM Enterprises was still focussed on Ahmedabad.
Ali and Abbas proposed a merger and Jafri accepted on the condition that they would help build HM Enterprises into a food company with interests in the entire farm-to-shelf value chain.
One day, Hemant Trivedi, then a professor at MICA and with whom Jafri had written a case study of Hearty Mart, wondered why he did not expand to villages. Jafri said he did not have the capital. Trivedi, who teaches retail business, suggested franchisees as a solution.
“Here was a business model that did not require high standards of education or skills. An owner-franchisee would be more involved,” says Trivedi, who is now director at the School of Petroleum Management, Pandit Deendayal Petroleum University, Gandhinagar.
(This article is excerpted from the latest Forbes India 09 November, 2012 issue which is now available at news stands and book stores. You can buy our tablet version from Magzter.com)